Archives of “creative solutions” tag

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Good Vs. Great Trading

  
  Education
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Good traders are able to identify opportunities in the market, plan trades, execute trades, and manage trades at a reasonable level. A good trader identifies the opportunity, plans the trade, and executes the trade. He takes his losses with discipline. One might think that great traders are similar to good traders but just better. The reality is that great traders are distinctly different from good traders. The difference is not merely a difference in measure but a difference in kind.

Great trading is actually much closer to gambling. One of the key differences between great trading and good trading is that great traders don’t just play the odds: great traders play the unknown. The market simply isn’t predictable enough – enough of the time — to allow for the type of returns that great traders seek. So, great traders are much more likely to be going out into that unknown space. This seeking out the unknown always involves a cost. The cost for greatness is the potential for loss, even significant loss. A great trader will typically take more risks. The risks could involve taking trades with higher uncertainties (less confirmation), higher risk per trade (giving a trade more room), and in general just a higher level of risk. This increased level of risk taking is balanced by increased trading skill.

The problem with trading just trading well is that the game, the trading game, is really close to a zero sum game, even when played perfectly. The focus on limiting risk tends to ignore the reality that every business has to make a profit to survive. The problem with trying to avoid risks is that it tends to push the game to such a competitive level such that the trader must trade at a near perfect level just to break even and nobody can trade perfectly forever. Eventually mistakes are made and losses occur. Great traders are more creative. They move laterally and find creative solutions. Great traders don’t really compete against others. It is more of a dance. Instead of playing the games against others, they make up their own game. (more…)

Think More, React Less

  
  Education
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Yesteraday finally watched Inception over the weekend and found it to be the most enjoyable movie so far of the summer. Of course, that’s not saying much as we continue to despise much of the garbage coming out of Hollywood these days, but we both found the movie fascinating.

One of the things in the movie that got me to thinking is the concept that when we sleep our minds keep working through problems at a higher level in order find and create solutions. I don’t know about you, but I immediately identified with this. In fact it caused me to remember something I use to do many years ago while in college  but haven’t been doing lately due to my early-morning “up at 5″ work schedule. That is, whenever I ran into a difficult impasse in my research and work, I would often spend the last 30 minutes before bed simply thinking and studying the problem I was facing. Then after going to bed while I was asleep my mind would continue working on it so that when I would awake the next morning I’d have a new angle or approach to work on.

While the process didn’t always work and sometimes resulted in an unrestful night’s sleep as I tossed and turned throughout the night, by taking time out of my day to think about a problem without distractions before bed at times did enable me to find creative solutions that seemed to work more often than not. Although I’ve done the same thing for years through daily meditation (20 minutes each and every day), I must confess I think there is something to the process of preparing your mind to work on problems while you sleep and completely free from distractions, especially if you’re faced with a particularly cumbersome or complicated challenge.

Many of you are probably not surprised to hear me say that I think time spent to concentrated thought without any distractions is something I think many traders lack these days. As all of us continued to be constantly bombarded with real-time information, I think many have become far more reactionary than “thought” driven. At some level that is ok for some strategies (like day trading for example), but it wreaks havoc on others.

It has also been my experience through working one-on-one with members in the mentorship group that most are not devoting enough “think time” in their daily routines. In my experience, the average person only takes less than 5 minutes a day (if that) to actually think through their trades, strategies, and plans. That’s not enough! Not by a long shot!

For that reason alone, mixing up your routine to enable your mind to think without distractions while you sleep may be at least something you’ll want to try. While I know from experience that I always receive dubious feedback whenever I recommend utilizing meditation and breathing techniques to help clear the mind, boost productivity, and overall performance, you may want to at least try mixing up your work schedule a little bit in order to gear and ramp up your mental state more effectively. In addition, if you’re not devoting some time every day (at least 30 minutes) free from all distractions to think about your strategies, positions, and performance, then I truly believe you are not really giving yourself the best chance for success.

The more the world speeds up and becomes even more reactionary, the more important I think it will be for those of us engaged in the markets to think more and react less.

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